European Commission takes action to protect businesses against marketing scams

Brussels, 27 November 2012 – Today, the European Commission outlined a series of actions to tackle marketing scams, such as those of misleading directory companies. The aim is to better protect businesses, professionals and NGOs across Europe from dishonest traders who do not play by the rules and use misleading marketing practices, such as sending out forms asking businesses to update details in their directories, seemingly for free, and then charging them annual fees. Small companies are particularly vulnerable to fraudsters, who are frequently operating from another jurisdiction within the EU. This makes enforcement difficult. The Commission therefore announced that it plans to beef up the existing legislation (the Misleading and Comparative Advertising Directive 2006/114/EC) to explicitly ban practices such as concealing the commercial intent of a communication, while at the same time stepping up enforcement of the rules in cross-border cases.

"Only solid Europe-wide rules will enable us to crack down on scams targeting businesses and make sure the culprits cannot hide behind national borders. This is why we are presenting this comprehensive plan today," said Vice-President Reding, the EU’s Justice Commissioner. "The practices of misleading directory companies, fake invoices and similar scams must be stopped.Small enterprises are the backbone of the European economy and can ill afford losing money to swindlers. We are determined to improve the security of doing business in Europe."

Every day EU-based businesses, professionals and civil society organisations fall victim to marketing scams. They range from providing false or misleading information about the service to sending offers disguised as invoices or misleading forms asking for updates in business directories. The figures reveal a new trend which can affect business worldwide. With the spread of mass-marketing techniques, the most notorious operators of misleading directories can reportedly send up to 6 million forms a year. The financial damage to individual companies that results from misleading directory scams is estimated to be between €1,000 and €5,000 per year for each company. The 23 million small and medium-sized enterprises (SMEs) in Europe represent 99% of EU businesses and have created 85% of net new jobs in the EU between 2002 and 2010. They are key drivers for economic growth and their rights should be protected.

Today, the Commission published a strategy (a Communication) that presents a detailed list of actions for the future to increase the protection of businesses:

1. Revising the rules prohibiting certain practices to make them more robust

To enhance legal certainty and ensure there are no gaps, some clearly misleading practices, such as those of the misleading directory companies, will be explicitly banned so that traders will instantly know that such practices fall under the Misleading and Comparative Advertising Directive and are thus illegal.

To make sure everyone plays by the rules of the game, the Commission envisages strengthening the penalties for infringements. Member States will have to ensure that their laws foresee effective proportionate and dissuasive penalties.

2. Strengthening enforcement of the rules against misleading marketing practices in cross-border cases:

Every Member State will be required to designate an enforcement authority with the necessary powers to make sure the rules are also applied in business-to-business relations. Today this is not the case in all EU countries.

The Commission will establish a cooperation procedure between enforcement authorities. This enforcement network will enable the relevant authorities, such as competition or consumer protection agencies, to exchange information, request cross-border assistance from each other and stop misleading practices affecting businesses.

To upgrade the current rules, the Commission plans to present a proposal in the course of 2013, following a thorough impact assessment.

The Commission’s action follows a survey by the European Parliament and a public consultation (see IP/11/1224) where businesses of all sizes and from all sectors strongly called for increased protection at EU level against misleading marketing practices specifically targeting businesses. 84% of the respondents supported EU-wide legislation against the most harmful commercial practices affecting businesses.

Background

EU legislation on misleading and comparative advertising (Directive 2006/114/EC of 12 December 2006) establishes a minimum, EU-wide legal standard of business protection from misleading marketing practices. It also ensures that comparative advertising compares "like with like", that it does not denigrate other companies' trademarks and does not create confusion among traders.

There are several misleading marketing practices employed by dishonest traders on a massive scale. The most frequent scams are often based on a common underlying scheme: a dishonest trader deceives a victim into giving consent and, purportedly, a contract is concluded with little or no service in return, but at an exorbitant price and under abusive contractual conditions. Afterwards, the misleading trader uses all possible means to enforce the payment.

A very common scheme is that of misleading directory companies who send out forms asking commercial operators (such as shop owners, architects or doctors) to update their details, seemingly for free. Once the victim signs up, they will then be told that they have signed a contract and be charged a significant yearly sum. An EU-wide survey has documented 13,000 complaints about company directory scams – thought to be just the tip of the iceberg. In this context, the effective enforcement of EU rules is currently difficult when the victim and the offender are from two different EU countries.

The European Parliament has also underlined the importance of this topic on many occasions. The problem of misleading directory companies in particular formed the basis of two Resolutions of the European Parliament, in 2008 and more recently on 9 June 2011.